As I discussed in yesterday's post, the broad stock market indices (DOW, S&P 500, NASDAQ) appear to be bouncing off their lows from Monday (inside our Jan. 5-11 reversal zone). Our concern now is how high they will go. This market was falling this morning, but then it picked up around mid-day and managed to close the day with significant gains. The NASDAQ's rally was especially robust. Despite this one day snap-back, the NASDAQ's chart is still looking quite bearish, and there are short-term bearish technical signals in all three charts suggesting this rally might not get very far. Furthermore, any rally is now rising into our next strong reversal zone (Jan. 11 - 20), so a top and move back down could be imminent. The NASDAQ is still well below our short position entry point on Dec. 31, so I am going to hold my short position a bit longer as I don't want to get "whip-sawed" out of this trade too early. We will consider covering this short position if today's rally gains momentum and approaches 15,645.
Gold appears to be a new medium-term cycle that started with the low of $1759 on Dec. 15. It made its first sub-cycle high at $1831 on Jan. 3 and then made a sub-cycle dip to a low on Jan. 7. Prices are now rising from that low. This cycle is fairly young and could be bullish, but it has to clear that $1831 high and then at least challenge the $1875 high of Nov.16 before we can say the cycle's trend is truly bullish. There are some bearish technical signals in gold's chart now and, as with the broad stock market, prices are rising sharply into a reversal zone specifically for the precious metals - Jan. 11 - 20 (same as for the stock market). This could put a curb on any rally and turn prices back down any day now this week or next. Lets wait to see if we get another deeper correction. Any corrective dip that stays above $1759 may give us a good spot to buy, but if prices start breaking below $1759, the cycle's trend will then be bearish, and we may start looking for shorting strategies in this metal. Staying on the sidelines of gold for now.
In last Thursday's blog on silver I wrote:
"Unlike gold, silver is most likely an older medium-term cycle (that started with Sept. 29's low of $21.44) and could be ready to move down to its final cycle bottom. There is a chance (less likely), however, that silver started a new medium-term cycle with gold on Dec. 15 with its low of $21.45. In both silver scenarios, a significant low happened on Dec. 15 (either a new cycle started, or a significant sub-cycle correction happened in an older cycle). The question now is how low can this corrective drop from last week's high ($23.40) go? Today prices found support at $22. If that support can hold, as with gold, we may consider entering a long position. A break and close below $22, however, would be a bearish sign. A break below $21.45 would mean the trend has turned bearish, even if the cycle is a new one."
All of this still applies. That $22 level is holding (so far). But the rally from there seems a little weak, and as with gold, prices are now rallying into a precious metal reversal zone this week and next. A top could be imminent and prices could turn back down again. If gold can exceed last week's high (it is close) without silver doing the same (or vice-versa), we could get a strong bearish divergence signal in this reversal zone, and that could really hamper any potential rally in both metals. We will remain on the sidelines of silver for now.